Abu Dhabi and Dubai award new prestige building contracts as recovery gains momentum

This might not be the frenzied boom of 2007-8 but the award of two major prestige building contracts this week underlines the strength of the recovery in the UAE.

The $650 million Louvre Museum finally goes ahead with Arabtec to build it and will be completed by 2015; and Emaar Properties has awarded the contract to build the sixth hotel in its Address brand to Brookfield Multiplex Construction.

Cup half-full

These are new projects and not half-completed ones that still await completion. There are still many examples of those. Consider the delayed or abandonned Dubai hotels.

The Palazzo Versace on Dubai Creek, the Royal Amwaj and Oceana hotels on The Palm, the planned Rosewood at DIFC and the Jumeirah Hotel at Dubai Healthcare City are all examples of properties started in the boom years that stand mainly complete but seemingly without the funds to finish them.

However, drive along the Al Khail Road at the back of New Dubai and you will notice that all the roundabouts have just been eliminated. That’s a good example of a necessary infrastructure project that stalled in the property crash and has now just been completed.

Tram on track

The Dubai Marina tram project is another back on track and moving ahead very swiftly now. So Dubai is completing its infrastructure and Abu Dhabi is getting on with building its museum island. That will be great for the tourists who occasionally write into ArabianMoney asking how to find the museums! The hotels are already there.

Is this now going to gradually spiral out-of-control like the last building boom in the Emirates? Not if the UAE Central Bank has anything to do with it. Dubai would probably love to get the cranes really swinging again but Abu Dhabi is still leery about the $20 billion bailout the last boom cost them.

The UAE Central Bank surprised everybody with a loan-to-value cap on mortgages in the New Year. This is designed to slow speculation although it will only impact on the 20-30 per cent of transactions that previously used high LTV ratios and may slow rather than derail the local property market recovery.

No boom-to-bust

It’s not the first such action from the Central Bank that has also put limits on bank lending to government entities, again a break on letting anybody get carried away.

This is prudent but it comes too late to prevent the completion of Dubai airport projects like the new A380 terminal that started a phased opening this year or the new Maktoum International Airport at Jebel Ali that will open for some passenger flights in 2013.

Perhaps a bit of credit tightening is no bad thing for the UAE. Priority is then likely to go to the most commercially viable projects, not the most prestigious. There also will not be the tendency to boom-and-bust and as ArabianMoney has noted before in the long-run this leads to higher and not lower property prices.

As HSBC analysts noted when reviewing the strong PMI outlook for the UAE this is all the more impressive for not being the product of a credit bubble.